- Research Article
Entry mode choice of Chinese enterprises: The impacts of country risk, cultural distance and their interactions
Frontiers of Business Research in China volume 5, pages 63–78 (2011)
Recent years have witnessed a phenomenal growth in the number of Chinese enterprises “going global.” Drawing on three leading theoretical perspectives including the transaction cost theory, organizational capability theory and eclectic theory, this paper develops hypotheses to test how country risk and cultural distance are associated with entry mode choices of enterprises from China. Based on a sample of 167 Chinese companies, an empirical investigation has been conducted employing logistic regression and hierarchical regression analyses. Our results show that country risk and cultural distance have significant impact on entry mode choice. With the increase of country risk or cultural distance, businesses prefer non-ownership-based entry modes such as trade and licensing. However, entry mode choice is also noticeably influenced by the interaction between country risk and cultural distance, which is a new finding of international entry mode research. Furthermore, private enterprises are more likely to adopt high-involvement entry mode than the state-owned enterprises, and service enterprises are less likely to use high-involvement entry mode, which suggests that different approaches are used to deal with country risk and cultural distance by various types of enterprises.
Agarwal, S., & Ramaswami, S. N. 1992. Choice of foreign market entry mode: Impact of ownership, location and international factors. Journal of International Business Studies, 23: 1–27.
Agarwal, S. 1994. Socio-cultural distance and the choice of joint ventures: A contingency perspective. Journal of International Marketing, 2(2): 63–80.
Anderson, E., & Gatignon, H. 1986. Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17(3): 1–26.
Brouthers, K. D., & Brouthers, L. E. 2001. Explaining the national cultural distance paradox. Journal of International Business Studies, 32(1): 177–189.
Brouthers, K. D., & Brouthers, L. E. 2003. Why service and manufacturing entry mode choices differ: The influence of transaction cost factors, risk and trust. Journal of Management Studies, 40(5): 1179–1204.
Brouthers, K. D., Brouthers, L. E., & Werner, S. 2002. Industrial sector, perceived environmental uncertainty and entry mode strategy. Journal of Business Research, 55: 495–507.
Buckley, P. J., & Casson, M. 1976. The future of the multinational enterprise (1st edition). London: The MacMillan Press.
Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. 2007. The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38(4): 499–518.
Chen, H., & Hu, M. Y. 2002. An analysis of determinants of entry mode and its impact on performance. International Business Review, 11(2): 193–210.
Contractor, F. J., & Kundu, S. K. 1998. Modal choice in a world of alliances: Analyzing organizational forms in the international hotel sector. Journal of International Business Studies, 29(2): 325–358.
Cui, L., & Jiang, F. 2009. FDI entry mode choice of Chinese firms: A strategic behavior perspective. Journal of World Business, 44: 434–444.
Daniels, J., Radebaugh, L., & Sullivan, D. 2010. International business: Environments and operations (13th edition). New Jersey: Prentice Hall.
Demirbag, M., Tatoglu, E., & Glaister, K. W. 2009. Equity-based entry modes of emerging country multinationals: Lessons from Turkey. Journal of World Business, 44: 445–462.
Deng, P. 2007. Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies. Business Horizons, 50(1): 71–81.
Erramilli, M. K., & Rao, C. P. 1993. Service firms’ international entry-mode choice: A modified transaction-cost analysis approach. Journal of Marketing, 57(3): 19–38.
Erramilli, M. K. 1996. Nationality and subsidiary ownership patterns in multinational corporations. Journal of International Business Studies, 27(2): 225–248.
Euromoney (2008). Country risk Mar 2008: Overall results. Retrived from http://proquest.umi.com/pqdweb?did=1455668391&sid=1&Fmt=3&clientId=26489&RQT=309&VName=PQD
Hill, C. W., Hwang, P., & Kim, W. C. 1990. An eclectic theory of the choice of international entry mode. Strategic Management Journal, 11(2): 117–128.
Hofstede, G., & Hofstede, G. J. 2005. Cultures and organizations: software of the mind. London: Mc Graw-Hill.
Hu, S. H. 2006. International business management. Guangzhou: Sun Yat-sen University Press.
Kim, W. C., & Hwang, P. 1992. Global strategy and multinationals’ entry mode choice. Journal of International Business Studies, 23(1): 29–54.
Klein, S., Frazier, G. L., & Roth, V. J. 1990. A transaction cost analysis model of channel integration in international markets. Journal of Marketing Research, 27(May): 196–208.
Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3): 411–432.
Madhok, A. 1997. Cost, value and foreign market entry mode: The transaction and the firm. Strategic Management Journal, 18(1): 39–61.
Ministry of Commerce of People’s Republic of China (2010). Statistical blletin of China’s outward foreign direct investment in 2009 Beijing, China..
Pak, Y. S., & Park, Y. R. 2004. Global ownership strategy of Japanese multinational enterprises: A test of internalization theory. Management International Review, 44(1): 3–21.
Quer, D., Claver, E., & Rienda, L. 2007. The impact of country risk and cultural distance on entry mode choice: An integrated approach. Cross Cultural Management: An International Journal, 14(1): 74–87.
Randoy, T., & Dibrell, C. C. 2002. How and why Norwegian MNCs commit resources abroad: Beyond choice of entry mode. Management International Review, 42(2): 119–140.
Root, F. R. 1994. Entry strategies for international markets. New York: Lexington Books.
Shane, S. 1994. The effect of national culture on the choice between licensing and direct foreign investment. Strategic Management Journal, 15: 627–642.
Sutcliffe, K. M., & Zaheer, A. 1998. Uncertainty in the Transaction Environment: An Empirical Test. Strategic Management Journal, 19(1): 1–23.
Taylor, C. R., Zou, S., & Osland, G. E. 2000. Foreign Market entry strategies of Japanese MNCs. International Marketing Review, 17(2): 146–163.
Williamson, O. E. 1975. Markets and hierarchies: Analysis and antitrust implications. New York: The Free Press.
Xu, Y. H., Hu, S. H., & Fan, X. A. 2009. The impact of country risk and cultural distance on transnational equity investments: Empirical evidence of Chinese enterprises’ shareholdings in overseas listed companies. Chinese Management Studies, 3(3): 235–248.
About this article
Cite this article
Xu, Y., Hu, S. & Fan, X. Entry mode choice of Chinese enterprises: The impacts of country risk, cultural distance and their interactions. Front. Bus. Res. China 5, 63–78 (2011). https://doi.org/10.1007/s11782-011-0121-8
- country risk
- cultural distance
- entry mode choice
- international business